Cryptocurrencies have played quite an impactful role during the Russia-Ukraine war, the imposition of sanctions and the ensuing financial market turmoil. Michael Fasanello of the Blockchain Intelligence Group says, “What fascinates me is that crypto will now be front and center for use by both Russia and Ukraine in this fight.” While Ukraine has received cryptocurrency donations in millions, Russians are seeking stability in the face of the crumbling Russian roubles.
Cryptocurrency is now a more conventional part of the global financial system and is undoubtedly a part of the Ukraine-Russia war. This is evident because as Russian forces invaded Ukraine, millions of dollars via cryptocurrency mode have been sent to Ukraine’s army and hacktivist groups. By 11 March, Ukraine had received crypto donations worth $100 million, says Alex Bornyakov, Ukraine’s deputy minister for Digital Transformation.
In a situation where the Ukrainian government is sinking, relying on traditional financial institutions is difficult. And there is definitely some apprehension about surveillance and reliance on banks. Therefore, a relatively anonymous system with no government involvement — such as a cryptocurrency network — appeals to Russian and Ukrainian citizens.
How has Ukraine been utilizing cryptocurrencies?
Ukraine’s ‘crypto crowdfunding appeal’ has been dubbed ‘unparalleled’ because it is the first time any country has asked for direct donations in digital tokens.
Ukraine’s Deputy Prime Minister Mykhailo Fedorov shared wallet addresses on Twitter on February 26, asking people to stand with the people of Ukraine. By 4 p.m. on February 27, the wallet addresses had ‘obtained crypto worth $7.9 million across nearly 11,500 donations,’ according to reports. Since then, the donations have multiplied several fold. Ukraine’s President Zelensky considers cryptocurrency usage during the war as a possible ‘economic breakthrough. ‘
The Government has accepted cryptocurrency payments in Bitcoin, Ethereum, USDT, Dogecoin, and Polkadot. 60% of these donations were received via Kuna, a Ukrainian crypto exchange. The government is converting the donated cryptos into dollars and euros via Kuna Exchange to buy military essentials.
Many non-profit organizations, including Ukraine DAO, Come Back Alive, Endaoment, etc., have directly accepted cryptocurrency donations. The Kyiv Independent — an English newspaper covering the war on its Twitter feed is also accepting crypto donations.
As Ukraine’s financial systems are under continuous threat from Russia, cryptocurrencies, especially Bitcoin, are becoming a more cost-effective and faster mode of transferring money over traditional ways.
According to Alex Bornyakov, Ukraine’s deputy minister of Digital Transformation, Ukraine has already spent $15 million of the cryptocurrency donations it obtained on military equipment, including bulletproof vests. Within two days of Russia’s February 24 invasion of Ukraine, the 250-member ministry was able to find suppliers in Europe and the United States for everything from vests to packaged foods to wound dressings and night-vision devices for the army.
The nation’s central bank suspended digital money transfers at the start of the invasion and prevented Ukrainian citizens from withdrawing foreign currency for various transactions. At the moment, at least some Ukrainians fleeing the country appear to be carrying crypto, which they aspire to convert into fiat currency once they reach safety. Others appear to be turning to cryptocurrency as a means of storing their wealth, fearing Ukraine’s economy collapsing soon.
Are Russians using cryptos to circumvent sanctions?
Following the invasion of Ukraine, Russia has been subjected to a slew of financial sanctions. Key Russian figures and financial institutions have been sanctioned by the United States, effectively barring American companies from doing business with them. Meanwhile, the US, its European allies and Canada have removed key Russian banks from the SWIFT interbank messaging system, limiting their access to global financial markets.
It is being demanded that crypto exchanges put a blanket ban on all Russian customers. However, the ban has not been initiated. Global exchanges feel that in the face of the Russian rouble losing its ground, cryptos may prove to be the lifeline for many Russians. And not all Russians are in favor of the invasion.
The Russian ruble has plummeted as a result of the sanctions. This has sparked a debate about whether cryptocurrencies, particularly Bitcoin, could be used to circumvent sanctions. This is due to the fact that Bitcoin and other digital currencies are decentralized, which means they are not issued or controlled by a centralized entity. When crypto is transferred to other users, it bypasses traditional financial plumbing. However, there are several obstacles:
Firstly, blockchain, the technology that powers Bitcoin, is a public activity-ledger. As a result, it is possible to easily track the movement of funds from one account to another. This does not make it an effective tool for evading sanctions.
Secondly, there is insufficient liquidity for Russian oligarchs and corporations to move their money. Because crypto liquidity is still a tiny percentage of the global currency market, moving large sums of money with crypto is difficult.
Using cryptocurrency amid a crisis is not always simple. For starters, you’ll need an internet connection and a functional device. You’ll also need to know how to use cryptocurrency, which has a steep learning curve and isn’t something most people will be able to pick up quickly in times of crisis.
There are thousands of cryptocurrencies, and they all work differently. Cryptocurrency must also be available for purchase. For instance, last month, wealthy Ukrainians reportedly had difficulty purchasing Tether, a digital asset class pegged to the US dollar. And, even if you’re only converting other assets you own into cryptocurrency right now, the rest of the financial system needs to be operational as well. While crypto donations might, to some extent, help the citizens and the government, they are nothing compared to the billions Ukraine has received via NATO donations.
The Russia-Ukraine war has given a distinct identity to cryptocurrencies as an alternative payment system and could prove as a major turning point in determining what the future holds for cryptocurrencies in maritime as well as war.